30th Apr 2015 09:24
LONDON (Alliance News) - John Menzies PLC shares rose Thursday after Swiss investment company and shareholder Lakestreet Capital Partners AG said it had started talks with the airport services and distribution company's senior management with a view to boosting its flagging revenue and profit margins and potentially breaking up the company.
Traditionally, Menzies was a print media distributor, but has tried diversifying several times over the past few decades, getting into the airport services business in the early 1990s. With the print media sector in structural decline, it also diversified its distribution business to handle other products, although it is struggling to make headway in a very competitive market.
It had an exceptionally tough year in 2014, as its airport services business, which does ground and cargo handling at airports across the globe, was hit by contract losses at Heathrow airport and it also booked higher costs related to the start-up of new contracts elsewhere. Its pretax profit dropped to GBP25.7 million, from GBP42.1 million in 2013, even though revenue was almost flat at GBP2.00 billion.
Managing Director David McIntosh left the firm after 25 years in January 2014 by mutual consent, and it undertook a broader management review in August, with the head of the aviation unit resigning. In early September, it appointed Jeremy Stafford, the former head of Serco's UK government work who stepped down in the wake of issues with a criminal tagging contract, as its new chief executive.
However, one of Stafford's first announcements as CEO of Menzies was a profit warning in November due to the issues at Heathrow. Those issued came as British Airways accelerated a move to Terminal Five and the airport opened the new Terminal Two. The airline moves and contract rotation resulted in 15 airlines changing their handling agent, while the British Airways acceleration resulted in some 10,000 turns moving to the airline's self-handled operation, according to Menzies.
The company then cut its dividend significantly when it released its 2014 results in March, saying it wanted to retain more cash to invest in growth opportunities.
Activist investor Lakestreet said it first bought John Menzies shares in the third quarter of last year, and then increased its stake after the share price sell-off that followed November's profit warning.
It noted that Menzies shares lost half their value in 2014, underperforming the FTSE 250 by more than 50% and leaving the company's market capitalisation at about GBP225 million, equivalent to a multiple of only three times earnings before interest, tax, depreciation and amortisation.
The shares had been rising in 2015, but the stock fell again in March after the company cut its dividend.
In its statement Thursday, Lakestreet said it thinks Menzies is "dramatically undervalued", particularly taking into account the sum of its parts. It said that if the distribution and aviation units were valued separately, it thinks the company's enterprise value could be in the region of GBP525 million.
It thinks the company's implied market capitalisation is in the region of GBP415 million, or about 675 pence a share, 86% above the closing price of 362.5 pence on Wednesday.
"Lakestreet has, therefore, committed itself to unlocking the intrinsic value of John Menzies in the interest of all shareholders and has constructively engaged in discussions with the Chairman, Mr. Iain Napier, the CEO, Mr. Jeremy Stafford, and the CFO, Ms. Paula Bell," it said, adding that talks are expected to continue ahead of the Menzies annual general meeting on May 15.
Lakeside said it had suggested "established methods" which, if successfully implemented by management, would boost Menzies' revenue growth, improve profit margins, and improve its competitive position.
The investor added that it had "raised concerns whether keeping two non-synergistic businesses in one group is still in the best interests of John Menzies' shareholders".
John Menzies shares were up 5.1% at 381.00 pence Thursday morning.
By Steve McGrath; [email protected]; @stevemcgrath1
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